In recent weeks, all eyes have been on Ukraine. Aside from the obvious concerns about world peace and conflict avoidance, the grain and feed industries have been watching closely with their own, more business-minded motivations. Namely, the implications conflict in the region would have on the grain trade, the cost of human, and, in turn, the cost of livestock feed the world over.

According to U.S. Grains Council (USGC), Ukraine reported a record 2013-14 corn harvest of 30.9 million metric tons (MT) – making it the No. 3 top corn producing nation and 4th largest corn exporter; it is also the 5th largest wheat exporter in the world. USDA projections suggest that total 2014 Ukrainian exports will reach 18.5 million MT (728 million bushels), leaving approximately 3.5 million MT (138 million bushels) remaining for exports between now and June.

To date, the ports of Crimea remain open; however, according to USGC’s Cary Sifferath, regional director for the Middle East and Africa, “shipments are becoming increasingly difficult.”

A Feed International source based in Russia suggests the conflict has already hurt the logistic routes, and the producers from the mainland Ukraine are losing the possibility to supply grain via the ports of Crimea.

“If the region becomes part of Russia, or becomes an independent state, then the logistic routes will be changed – maybe from that moment they will go through Odessa ports – but it will be definitely more expensive for grain producers and thus may affect the final prices on the contracts,” he says.

FI’s source says that, should separatist tensions split the region into Eastern and Western parts, two regions with differing political intensions with “ruin the joint infrastructure.” For example, “agricultural holdings with assets on both sides will suffer extremely heavy losses.”

“Ukraine as the region not only will fail to take the position of the second in the world largest corn exporters, but also will lose the largest part of grain production capacities,” he says.

Commodity market reaction

While there have not been signs of serious trade disruption, the commodity market has reacted accordingly.

Farmers fearing a devaluing currency and questionable credit are holding their grain to hedge against the “the uncertainty caused by growing tensions in the region.” Wheat futures, for example, dropped as Ukranians began hoarding grain to hedge against a weakening market. Meanwhile, Ukrainian currency has fallen to record lows against the U.S. dollar.

“Ukrainian farmers are beginning to hold onto their grain as a way to hedge against a declining local currency,” says Gina Tumbarello, manager of International Trade, American Feed Industry Association, noting that escalating corn and wheat prices in the region rose higher to due to the conflict. “We are hearing that Egypt was told that their shipments of corn from the Ukraine will be delayed two to three weeks. This should be manageable. The real problem would be if we start seeing defaults on such contracts.”

Coming off good crop year, key exporting countries see the potential marketing opportunities (namely additional U.S. exports to North Africa, the Middle East and China), but the associations warn against the potential issues if the Crimea situation escalates.

In addition, the global supply of corn and wheat may be impacted if Ukrainian farmers aren’t able to get financing to start planting in the next 30 to 40 days for the next crop season.

“The economic instability will affect Ukrainian farmers looking to plant this year’s crop,” says USGC’s president and CEO Tom Sleight. “Ukraine is in a tough spot financially, and planting season is just around the corner.”

With tight corn and wheat stocks, the international feed industry is concerned about how the conflict will play out in the weeks and months ahead and what it will do to grain prices. When a key agricultural player such as Ukraine is affected by geopolitical strife, it reminds us of how interconnected our interests and businesses are with the global market.

As the Russian Parliament prepares to organize a vote on Crimea’s annexation and sanctions are set in place, the industry – and the world – continues to watch and wait.